You are on page 1of 30

ACCA F3

Financial Accounting(INT)

June2015
[Sample study note]

Accounting Practise Center (A.P.C)

www.globalapc.com

Lesco Group Limited, April 2016


All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or
transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or
otherwise, without the prior written permission of Lesco Group Limited.

Accounting Practise Center (A.P.C)

www.globalapc.com

Content
Exam:
Chapter1 Basis of accounting
(Revision)Chapter1 Questions practice:
Chapter 2 How can we prepare financial statements?
Revision to books of prime entry
Chapter3 Prepare the FS with incomplete records
Revision to incomplete records:
Chapter4 Controlling the booking system
Revision to Correction of errors and suspense account .
Chapter 5 Accounting for payroll
Revision of Accounting for payroll
Chapter6 Single financial statements for limited liability companies

Chapter7 Capital Structures:

Chapter 8 Sales tax and Taxation


Revision of limited liability company account
Chapter9 cash flow statement
Revision of statement of cash flows
Chapter10 IAS 2 Inventory
Revision of inventory:
Chapter 11 Non-current assets
Revision of Non Current assets
Chapter 12 Irrecoverable debts and allowances
Revision of Irrecoverable debts and allowances
Chapter 13 Accruals and prepayments
Revision of accruals and prepayment

Accounting Practise Center (A.P.C)

www.globalapc.com

Chapter 14 Regulatory framework & Conceptual framework


Regulatory framework
Conceptual framework
Revision of conceptual framework:
Chapter15 Interpretation of Financial Statements
Revision of Ratios:

Accounting Practise Center (A.P.C)

www.globalapc.com

Exam:
FORMAT OF THE EXAM

This exam can be sat as a written or computer based exam.


The exam is 2 hours long with no reading time.
50 questions with 100 marks available and Pass mark is 50.
All questions are worth 2 marks each.
Both computational and non-computational questions.
All questions are compulsory.

2 sections: [New exam format since 2014]


Section A: 35 questions worth 70 marks
Section B: 2 questions worth 30 marks
For the exam structure information, pls visit this video produced by ACCA:
https://www.youtube.com/watch?v=qUsoR0alSdA

Accounting Practise Center (A.P.C)

www.globalapc.com

Chapter1 Basis of accounting

Basis of accounting

1, different types of businesses

Sole trader
One person owns and runs the business.
The sole trader and the business are legally the same entity and therefore the sole trader
is personally liable for any business debts.

Partnership
Two or more persons owns and runs the business.
The partners and the business are legally the same entity and therefore the partners are
jointly liable for any business debts.

Limited liability company


Shareholders and a number of appointed directors own and run the business.
A company is a legal entity in its own right, and therefore the shareholders only have
limited liability for any business debts.

2, Different Types of accounts

Management accounts
These are producedwhen a business wants them. They are produced for internal use and
will not, usually be seen by external people. Management accounts can be prepared using
the companys own internal policies.

Financial accounts
These accounts are usually produced annually. They are based on historical information
and are rarely used internally. Financial accounts are used by external users for several
reasons:
-Investors
-Lenders
-Employees
-Government
-Public

Accounting Practise Center (A.P.C)

www.globalapc.com

3,Basic accounting equation;


Asset=Liability + Equity

Principles:
1, DR must have a CR
2, the balance for DR&CR should equal
Eg:
I put $20,000 cash into the business.
DR cash 20,000
CR Capital 20,000

I Withdraw $3,000 from the business for my own use

DR Drawings 3,000
CR Cash 3,000

Accounting Practise Center (A.P.C)

www.globalapc.com

(Revision)Chapter1 Questions practice:


1, Which of the following will best describe a sole trader?
A: A business is owned and operated by one person that is incorporated
B: A business is owned by two or more people that is unincorporated
C: A business is owned by shareholders and run by an appointed board of directors
D: A business is owned and operated by one person that is unincorporated
Answer:
1: D
A: Company
B: partnership
C: company
2, Which one of the following would be an example of an advantage of a partnership
over a sole trader?
A: Partnerships are required file financial statements
B: Shared expertise amongst the partnership
C: the partnership and the business are separate legal entities
D:Partnerships don't have to pay tax
Answer: B
A: no FS required.
C:no separate legal entity because its not incorporated entity
D: have to pay tax
3, Limited liability companies must prepare and file financial statements each year.
Is this comment true or false?
A: True
B: False
Answer: A
4, Management accounts are best described as monthly accounts prepared for internal
use which have a set format prescribed by accounting standards
Is this comment right or wrong?
A:right
B:wrong
Answer: B
5, The accounting equation can be written as:
A: Assets-liabilities=opening capital+profit+drawings
B: Assets+liabilities+drawings=opening capital-profits
C: closing assets-closing liabilities-opening capital +drawings=profit
8

Accounting Practise Center (A.P.C)

www.globalapc.com

D: Liabilities=Assets-drawings+openingcapital+profit
Answer: C
Equity= share capital + retained earnings-drawing

6, The business entity concept is best described as?


A: a business and its owner are a dual entity
B: a sole trader that owns two different businesses
C: a sole trader that owns a business that sells two different products
D: a business is a separate entity from its owner
Answer: D
A: owner is not an entity [entity incurs business transactions]
B: not 2 businesses
C: can sell many products you want

7, A sole trader puts $3,600 of cash into the business bank account. Which elements of
the accounting equation will change due to this transaction?
A: liabilities and capital
B: Assets and capital
C: Profit and drawings
D: Assets and drawings
Answer: B: DR cash 3600 CR equity 3600
8, A sole trader purchases a new computer for use in the business for $6,000 cash.
What will the impact on assets be?
A: increase $6,000
B: Decrease by $6,000
C: No change
D: Increase by $9,000
Answer: C
DR PPE 6000 CR cash 6000
9,what is the double entry for a business selling goods on credit for $8,900?
DR
CR

$
$

Answer: DR receivable 8900 CR sales[income] 8900

Accounting Practise Center (A.P.C)

www.globalapc.com

10 :Fill the blank:


______________________ and _______________________ are examples of non-current liabilities.

Answer:
Long term loan
Deferred tax liability
Deferred payment

11: Working capital is another term for net assets. True or false?
Answer: False.
Net asset= equity
Working capital= net current assets[current assets-current liabilities]

12 Fill in the two missing words.


Return is a .. for in a business. 2 Marks

Answer:
Return is a reward for investment in a business.

10

Accounting Practise Center (A.P.C)

www.globalapc.com

Chapter 2 How can we prepare financial statements?


double bookkeeping
statement of financial position & statement of profit or loss
Step1:
Step2:
Step3:
Step4:
Step5:
Step6:

transaction and source document


books of prime entry
ledger & balance off the account
trial balance
year end adjustment journal
FS(SOFP & P/L)

11

Accounting Practise Center (A.P.C)

www.globalapc.com

Step 1: Source of documents


Quotation.A business makes a written offer to a customer to produce or deliver goods or
servicesfor a certain amount of money.
Sales Order Note. A customer writes out or signs an order for goods or services he
requires.
Purchase Order Note. A business orders from another business goods or services, such
as material supplies.
Goods received note. A list of goods that a business has received from a supplier. This is
usually prepared by the businesss own warehouse or goods receiving area.
Goods dispatched note. A list of goods that a business has sent out to a customer.
Invoice. The invoice is a request for the customer to pay what he owes.
When a business sells goods or services on credit to a customer, it sends out an invoice. The
details on the invoice should match the details on the sales order.
When a business buys goods or services on credit it receives an invoice from the supplier.
The details on the invoice should match the details on the purchase order.

Statement of account.A document sent out by a supplier to a customer listing all invoices,
credit notes and payments received from the customer showing how much the customer
still needs to pay for supplier.
Debit note.
A document sent by a customer to a supplier in respect of goods returned or an
overpayment made. It is a formal request for the supplier to issue a credit note.
In simple words, for customer, please give me money.
Credit note.
A document sent by a supplier to a customer in respect of goods returned or overpayments
made by the customer. It is a negative invoice.
A creditnote is issued in various situations to correct a mistake, such as when
(1) aninvoice amount is overstated,
(2) correctdiscount rate is not applied,
(3) they do not meet the buyer's specifications and are returned.
In simple words, for supplier, Ill give you money.
12

Accounting Practise Center (A.P.C)

www.globalapc.com

Remittance advice
A document sent to a supplier alongside any payment sent to them. It details which
invoices are being made.
In the real practice, the supplier sent you the invoice telling you how much you should pay
and after the payment you can send them back a remittance advice telling them about the
payment information:

Account Number :

Currency:

Invoice Number :

Invoice Amount:

Receipt.A written confirmation that money has been paid. This is usually in respect of cash
sales, eg a till receipt from a cash register.

NOTE:
Data about sales transactions recorded in an accounting system comes from:
1,sales invoice
2,credit notes
3,payments by customers(cheque or remittance advice)
4,receipts(sellers copy) in cash sales

Data about purchase transactions recorded in an accounting system comes


from:
1,purchase invoice
2,credit note
3,payments to suppliers(cheque or remittance advice)
4,receipts(purcahsers copy) in cash purchases

13

Accounting Practise Center (A.P.C)

www.globalapc.com

Step 2, Books of prime entry


Main business transactions are summarised into books of prime entry for later posting to
the ledgers.
Why?

We can use journals to record all business transactions but the volume is HUGE
especially for big companies.

Then what we do is to post all trasnactions into the books and only record the total
figure from each books to ledger account.

The common books of prime entry and the types of transaction recorded in them are:
Sales Day Book (SDB)

Records credit sales to customers

Sales Returns Day Book (SRDB)

Records the return of credit sales

Purchases Day Book (PDB)

Records credit purchases from suppliers

Purchases Returns Day Book (PRDB)

Records the return of credit purchases

Cash Payments Book (CPB)

Records all payments made at the bank

Cash Receipts Book (CRB)

Records all receipts made at the bank

Petty Cash Book

Records all receipts and payments ofcash in hand

Journal

Other transactions (Depreciation etc)

14

Accounting Practise Center (A.P.C)

www.globalapc.com

Sales day book


Date

Invoice no.

Customer

Net Sales

Tax

Gross

Sales Returns Day Book


Date

Credit note

Customer

Net Sales

Tax

Gross

Purchase day book


Date

Invoice no.

supplier

Net purchase

Tax

Gross

Purchase Returns Day Book


Date

Credit note

supplier

Net purchase

Tax

Gross

Cash Receipt Book


Date

Narrative

Bank

Receivab

Cash

les

sales

Payables

Rent

Capital

Discount
Allowed

Cash payment Book


Date

Narrative

Bank

Van

Disocunt
Received

Petty cash book


Receipt

Date

Narrative

Cash

Postage

15

Accounting Practise Center (A.P.C)

www.globalapc.com

Step3post to Ledger
All SFP elements such as ASSETS, LIABILITIES, EQUITY would have a closing balance
carried forward to next years opening balance.
But P/L elements such as income and expense would not have a closing balance.
Examples of accounts included in the nominal ledger
Plant and machinery at cost (non-current asset)
Motor vehicles at cost (non-current asset)
Plant and machinery, provision for depreciation (liability)
Motor vehicles, provision for depreciation (liability)
Proprietor's capital (liability)
Inventory raw materials (current asset)
Inventory finished goods (current asset)
Total receivables (current asset) often called sales ledger control account
Total payables (current liability) often called purchase ledger control account
Wages and salaries (expense item)
Rent (expense item)
Advertising expenses (expense item)
Bank charges (expense item)
Motor expenses (expense item)
Telephone expenses (expense item)
Sales (income)
Total cash or bank overdraft (current asset or liability) often called cash control
account
Petty cash (current asset)
Step4: Trial Balance

DR

CR

Bank
Capital
Sales
Purchases
Payable
Rent
Van
Receivable
Petty cash
Stamps
Total

16

Accounting Practise Center (A.P.C)

www.globalapc.com

Step5: adjustment
Year end inventory journal

Step6: financial statements:


Jimmys statement of profit or loss for year ended 30/11/2010
$

Sales
-Cost of sales
Opening inventory
+purchases
-closing inventory
Gross profit
Other income
-expenses
Rent
Stamps
Profit before interest and tax
Interest expense
Profit for the year

17

Accounting Practise Center (A.P.C)

www.globalapc.com

Jimmy statement of financial position as at 30/11/2010


Cost
$

Accumulated
depreciation
$

Carrying value
$

Non current assets


Van
Current assets
Inventory
Trade receivable
Cash at bank
Petty cash
Total assets
Capital
Opening capital
Profit/loss
Drawings
Non-current liabilities
Current liabilities
Trade payables
Total capital
liabilities

and

18

Accounting Practise Center (A.P.C)

www.globalapc.com

Since weve looked at how to prepare the financial statements and the petty cash book
we can then have a detailed look at the imprest system concept within the petty cash
book.

Receipt

Date

100

Narrative

Cash

Postage

12.11.2010

Cash receipt

13.11.2010

Stamps

10

10

Total

10

10

In practical world, we always need to keep a float amount of money within the business
so that we can use these money to buy bits and pieces, eg, biscuits whenever we want
without withdrawing from the bank each time.
So for the imprest system: (3steps/characteristics)
Step1: decide the float amount:$100;
Step2: receipt will be recorded in petty cash book as $100; payment for expenditure
will be recorded in petty cash book as well and any expenditure and receipt must have
a voucher. float amount=cash in tin +vouchers
$100
= $90
+ $10

Step3: The amount used is restored on a regular basis to the float amount.
DR petty cash $10
CR Bank
$10

Petty cash

DR
Bal b/f(float)

100

Bank

CR

vouchers

17

Bal c/f(float)

100

17
117
117

Bal b/f(float)

100

19

Accounting Practise Center (A.P.C)

www.globalapc.com

Revision to books of prime entry


1In which books of prime entry should discounts received to be recorded?
A:purchase day book
B:cash book
C:sales day book
D:journal
Answer: B
Purchase/sales day book: net/gross purchase/sales + tax
Cash book: receipt/payment/discounts
Journal: other things not posting into the books.
2Which of the followings are books of prime entry?
1,sales day book
2,journal
3,norminal ledger
4,cash book
A:all of the above
B:1,3&4
C:1,2&4
D:2,3&4
Answer: C.
We post the total figures from books to nominal ledger and hence 3 isnt correct.
Journals are used to record all business transactions and hence yes.
3,Jenny uses the imprest method of accounting for petty cash. She counted the petty
cash and there was $66 in hand(petty cash tin).
There were also the following petty cash vouchers/receipts:
$
Sundry purchases
22
Loan to sales manager
10
Purchase of staff drinks
19
Sundry sales receipts
47
What is Jennys imprest amount?
A: $164
B: $50
C: $62
D: $70

20

Accounting Practise Center (A.P.C)

www.globalapc.com

Answer: D
Imprest=maximum limit of petty cash to keep

Imprest system

Sundry purchases

(22)

Loan

(10)

Staff drinks purchase

(19)

Receipts from customers(sundry)

47

Cash in hand

66

So: 66 -47 +19+10+22=70


4, Johnkeeps his petty cash records using an imprest system. The total petty cash float
is made up monthly to $450. During the month of January, the following expenses were
paid from petty cash:
Milk: $52
Postage stamps: $100
Window cleaner: $50

By mistakes the milk was recorded as $25 and as a result a cheque for $175 was
written to top up the petty cash float. The error made will result in the following:
A: an understatement of expenses of $27 and the petty cash balance being $75 less
than it should be.
B:an understatement of expenses of $27 and the petty cash closing balance being $27
less than it should be.
C:an imbalance in the trial balance of $27 and the petty cash balance being $27 less
than it should be.
D:an imbalance in the trial balance of $95 and the petty cash balance being $75 less
than it should be.
Answer: B
Correct:
Amount left= 450-52-100-50=248
So money should be drawn from bank: 450-248=202 (DR petty cash)
Wrong:
Amount left= 450-25(mistakes)-100-50=275
So money should be drawn from bank: 450-275=175 (DR petty cash)
So:
21

Accounting Practise Center (A.P.C)

www.globalapc.com

Closing balance of petty cash: (amount left): 275-248=27more


Expense(milk): 25-52=27 (understate)
Trial balance: [C&D say imbalance are not correct!]
Correct situation:
DR
Petty cash

CR

450

Bank

652(450+52+100+50)

Milk

52

Postage

100

Window

50
652

652

Wrong situation:
DR
Petty cash

CR

450

Bank

627(450+25+100+50)

Milk

52 25

Postage

100

Window

50
625

625

5,Jeremy purchased some goods for resale. These goods had a list price of $3000 and
Jeremy was offered a discount of 10% if he paid within 30 days. Assuming he paid
within 30days, what was the correct entry to record the transaction?
A:debitpurcahses $3000, credit cash $2700 ,credit discounts allowed $300
B:debit purcahses$3000, credit cash $2700 ,credit discounts received $300
C:debit purcahses$3000, credit cash $3000
D:debitpurcahses $3000, credit cash $2700 ,credit cost of sales$300.
Answer: B
DR purchase 3000
CR cash 2700
CR income(discount received) 300
6, which of the following could appear on the credit side of receivable ledger control
account?
1,sales
2,discounts allowed
3,irrecoverable debts written off
4,cash receipts from customers
5,dishonouredcheques

22

Accounting Practise Center (A.P.C)

www.globalapc.com

A:1,2,3,4
B:2,3,4
C:all
D:2,3,5
Answer: B
In what situations that the receivable balance would be reduced?
1: sales: increase receivable balance
2: Discount allowed: reduce receivable balance
3: irrecoverable debts written off: receivable balance
4: cash receipts from customers: DR cash Cr receivable: reduce receivable balance
5:dishonored cheque: increase receivable balance because there is no sufficient funds
from customers bank account and hence customer hasnt paid for us yet.

7,Which of the following could appear on the debit side of a payables control account
1,purchases
2,cash paid
3,disoucnts received
4,interest paid on overdue accounts
A:1,4
B:2,3,4
C:2,3
D1,3,4
Answer: C
In what situations that the payable would be reduced?
1,purchases : DR purchase CR payabale and increase payable balance
2,cash paid : DR payable CR cash and hence decrease payable
3,disoucnts received: DR payable DR income-discount received : decrease payable
4,interest paid on overdue accounts: DR interest expense CR payable

8, where a customer is also a supplier this could lead to:


A:a debit entry on the receivables control account and a credit entry on the payables
control account of the same amount.
B:a credit entry on the receivables control account and a debit entry on the payables
control account of the same amount.
C:a credit entry on the receivables control account and a debit entry on the payables
control account of a different amount.
D:a debit entry on the payables control account and a debit entry on the receivables
23

Accounting Practise Center (A.P.C)

www.globalapc.com

control account of the same amount.


Answer: B
A buys goods from B worth $100: DR purchases 100 CR payable 100
A sells goods to B worth $50
: DR receivable 50 CR sales
50
Contra: DR payable 50 CR receivable 50
(Instead of 2 transactions happening, why not net them off into 1?)

9, which of the followings Is the correct posting of sales day book totals?
A:credit payables, debit purchases, credit sales tax
B:debit receivables, credit sales, credit sales tax
C:credit receivables, debit sales, debit sales tax.
D:debit receivables, credit sales, debit sales tax

Answer: B
Sales day book
Date

Invoice no.

Customer

Net Sales

Tax

Gross

DR receivable
CR sales
CR VAT liability (sales tax)

10,which one of the following best describes books of prime entry?


A: books of prime entry are part of the double entry general ledger system
B:books of prime entry record transactions of the same type and the totals from the
books are periodically used to update the general ledger
C:businesses are required by the accounting standards to maintain books of prime
entry
Answer: B
A: first booksthen ledger but not part of it
C: required by the accounting standards to prepare the FS not the books of prime entry
which has different forms/names

24

Accounting Practise Center (A.P.C)

www.globalapc.com

11,
Payables ledger control a/c

DR

Purchases
Contra
Payment to suppliers

$
16,000
6,000
20,000

CR

$
balance b/f
42,000
discounts received
500

Balance c/f 500


42,500

42,500

What is the correct payable balance to be presented in the statement of financial


position? $_______

Answer: 31500
Opening payable (CR) 42,000
Purchases: DR purchase CR payable 16,000
Contra: DR payable CR receivable 6,000
Payments to suppliers: DR payable CR cash 20,000
Discounts received: DR payable CR income(discounts received) 500
Payable (closing) 42000+16000-6000-20000-500=31500

12, Tom sells goods on credit to Amy with a list price of $10,500. Amy received a 10%
trade discount from Tom as well as a further 3% discount if Amy paid within 14 days.
Assuming Amy paid within 7 days, what is the amount to be presented in the statement
of profit or loss of Tom for discounts allowed?
$____

Answer: 283.5

List price

10,500

Discount @10% (10%X10,5000

(1,050)
9,450

Early settlement discount @3% (9450X3%)

(283.5)

25

Accounting Practise Center (A.P.C)

www.globalapc.com

13,
Your organisation sold goods to PQ for $800 less trade discount of 20% and cash discount of 5% for
payment within 14 days. The invoice was settled by cheque five days later. What is the double entry for
the cash discount allowed?

Answer:
DR Expense(Discount allowed) [$800 X (1-20%) X5%] 32
CR Receivables control account
32

14,
The following totals appear in the day books for March 2013.

Opening and closing inventories are both $3,000.


The gross profit for March 2013 is ........................................

Answer:

Sales (40,000-2,000(return inwards))

38,000

Cost of sale
Opening inventory 3000
Purchases
20,000 4000(return outwards)
Closing inventory (3000)

(16,000)

Gross profit

22,000

Gross profit is not net profit so we dont need to consider the tax effect.
Return Outwards:
Faulty or wrong goods that the business returns back to suppliers
Record in purchase return day book. [DR note]
Explanation: when you return goods back to suppliers, the amount you owe them
reduces as you do not have to pay for the wrong items. You will also have to open a new
ledger account for return outwards.
26

Accounting Practise Center (A.P.C)

www.globalapc.com

Return Inwards:
Faulty or wrong goods that the customers return back to the business
Record in sales returns day book (CR note)

27

Accounting Practise Center (A.P.C)

www.globalapc.com

Chapter3 Prepare the FS with incomplete records


Scenario: client may ask you to prepare the FS for them with the missing records, eg,
sales invoices are missing so that we cant establish the credit sales; purchase invoices
are missing so that we cant establish the credit purchases for the year; closing
inventory is missing so that we cant establish the gross profit.
The techniques to establish the missing records are:
1, use accounting equation
2, use ledger accounts
3, use profit percentages

[ALP]

28

Accounting Practise Center (A.P.C)

www.globalapc.com

Technique1, use accounting equation

Accounting equation:
Assets=liabilities+capital
So:
Assets-liabilities=capital
Net assets = opening capital+capitalintroduced+profit-drawings=closing capital

Missing profit:
Mannys statement of financial position at 31 December 2011 shows that the business
has net assets of $5,000.
The statement of financial position at 31 December 2010 shows that the business has
net assets of $8,000.
Mannys drawings for the year amounted to $2,500
She didnt introduce any further capital in the year.
Required:
Calculate the profit for the year ended 31 December 2011.

Answer:
Op capital
Capital introduced
Profits [balancing]
Drawings
Closing capital (net asset)

5000
5500
(2500)
8000

29

Accounting Practise Center (A.P.C)

www.globalapc.com

Technique2:, Use ledger accounts

1, credit sales are missing, use receivable control account


Opening balance on the trade receivables control account of Mannys company was
$50,000.
there had been receipts from credit customers in the year of $45,000.
irrecoverable debts that have been written off equals to $5,000 and the closing balance
on the trade receivables control account was $55,000.
So what is the credit sales for the year?

Answer:
Way1:
DR receivable 50,000
Dr cash 45000 CR receivable 45000
DR P/L-irrecovable debt 5000 CR receivable 5000
SO: 50,000-45000-5000=0
But closing balance of receivable=55000 So it should be DR receivable 55000 CR sales 55000
Way2:

Or:

30

Accounting Practise Center (A.P.C)

www.globalapc.com